Bengaluru/Mumbai: Vikram Pandit, former chief executive officer of Citigroup Inc., and Mumbai-based JM Financial Ltd are investing Rs.900 crore in the latter’s real estate-focused non-banking financial company (NBFC), said three people familiar with the development.

“We already have a licence for a real estate NBFC and in this existing NBFC, Vikram Pandit’s fund will invest about Rs.540 crore for a 50% stake. JM Financial will invest about Rs.360 crore in the venture,” a top JM Financial executive said on condition of anonymity.

“We have not hired anyone new to head the NBFC. The existing team at JM will be running the NBFC,” he added.

The deal closed recently. In May 2013, JM Financial announced an association with Pandit, where the latter would be appointed non-executive chairman of the financial services firm that was then planning an entry into banking. Pandit and his business partner Hari Aiyar were also said to be acquiring a 3% equity stake in JM Financial through an issue of warrants, and the former was also reported to be buying an undisclosed stake in the NBFC.

Pandit, who is currently chairman of TGG Group, didn’t respond to an emailed query seeking comment.

TGG Group, which has offices in New York, Chicago and London, is a consulting firm that relies on behavioural science and data analysis. It also runs a specialized practice for non-profit businesses, called the Greatest Good, and TGG Ventures, an idea incubator for the group. “Vikram Pandit has raised capital from a couple of LPs (limited partners) very recently, and this money has been pumped into his offshore fund vehicle through which this investment has been made,” said a second person who also asked not to be identified. JM Financial was one of the 25 applicants for a banking licence last year.

In April, this year, the Reserve Bank of India granted licences only to two, IDFC Ltd and Bandhan Financial Services Pvt. Ltd. JM Financial has interests in investment banking, institutional equity sales, trading, research and broking, private and corporate wealth management, equity broking, non-banking financial products, and private equity. It has substantial exposure to the real estate sector through JM Financial Products Ltd. There is also the JM Financial Property Fund, which raised around Rs.400 crore in 2007-08 to invest in residential, hospitality and mixed-use projects.

NBFCs are among the most active lenders to the real estate sector today, as developers continue to raise debt even as demand lags. JM Financial intends to rapidly expand its NBFC lending book to around Rs.2,500 crore by 2015, said the second person.

“NBFC lending is very relevant for developers who need early-stage funding, where approvals may have come in and the project needs to start. Being high-cost debt, NBFCs also take more risk while investing in projects,” said Neeraj Bansal, partner and head of real estate and construction practice at consulting firm KPMG’s India unit. NBFCs are also seeing enormous opportunities in the current real estate market, where demand for capital is big. Property analysts said that since they mostly don’t monitor the end-use of capital, developers liberally use it for a variety of reasons, including refinancing of earlier loans. NBFC interest rates typically vary between 17% and 22%.

Certain NBFCs and private equity funds have started looking at real estate investments and are structuring transactions with heavily leveraged developers at discounted rates, with a view to re-sell strata (smaller) units at a premium, said Ravi Ahuja, executive director at property advisory Cushman and Wakefield India.

“By underwriting such projects at approximately 15-20% discount to prevailing prices, NBFC expectations are to achieve much higher returns than what the debt market currently offers,” he said.

Bengaluru/Mumbai: Vikram Pandit, former chief executive officer of Citigroup Inc., and Mumbai-based JM Financial Ltd are investing Rs.900 crore in the latter’s real estate-focused non-banking financial company (NBFC), said three people familiar with the development. “We already have a licence for a real estate NBFC and in this existing NBFC, Vikram Pandit’s fund will invest about Rs.540 crore for a 50% stake. JM Financial will invest about Rs.360 crore in the venture,” a top JM Financial executive said on condition of anonymity. “We have not hired anyone new to head the NBFC. The existing team at JM will be running the NBFC,” he added. The deal closed recently. In May 2013, JM Financial announced an association with Pandit, where the latter would be appointed non-executive chairman of the financial services firm that was then planning an entry into banking. Pandit and his business partner Hari Aiyar were also said to be acquiring a 3% equity stake in JM Financial through an issue of warrants, and the former was also reported to be buying an undisclosed stake in the NBFC. Pandit, who is currently chairman of TGG Group, didn’t respond to an emailed query seeking comment. TGG Group, which has offices in New York, Chicago and London, is a consulting firm that relies on behavioural science and data analysis. It also runs a specialized practice for non-profit businesses, called the Greatest Good, and TGG Ventures, an idea incubator for the group. “Vikram Pandit has raised capital from a couple of LPs (limited partners) very recently, and this money has been pumped into his offshore fund vehicle through which this investment has been made,” said a second person who also asked not to be identified. JM Financial was one of the 25 applicants for a banking licence last year. In April, this year, the Reserve Bank of India granted licences only to two, IDFC Ltd and Bandhan Financial Services Pvt. Ltd. JM Financial has interests in investment banking, institutional equity sales, trading, research and broking, private and corporate wealth management, equity broking, non-banking financial products, and private equity. It has substantial exposure to the real estate sector through JM Financial Products Ltd. There is also the JM Financial Property Fund, which raised around Rs.400 crore in 2007-08 to invest in residential, hospitality and mixed-use projects. NBFCs are among the most active lenders to the real estate sector today, as developers continue to raise debt even as demand lags. JM Financial intends to rapidly expand its NBFC lending book to around Rs.2,500 crore by 2015, said the second person. “NBFC lending is very relevant for developers who need early-stage funding, where approvals may have come in and the project needs to start. Being high-cost debt, NBFCs also take more risk while investing in projects,” said Neeraj Bansal, partner and head of real estate and construction practice at consulting firm KPMG’s India unit. NBFCs are also seeing enormous opportunities in the current real estate market, where demand for capital is big. Property analysts said that since they mostly don’t monitor the end-use of capital, developers liberally use it for a variety of reasons, including refinancing of earlier loans. NBFC interest rates typically vary between 17% and 22%. Certain NBFCs and private equity funds have started looking at real estate investments and are structuring transactions with heavily leveraged developers at discounted rates, with a view to re-sell strata (smaller) units at a premium, said Ravi Ahuja, executive director at property advisory Cushman and Wakefield India. “By underwriting such projects at approximately 15-20% discount to prevailing prices, NBFC expectations are to achieve much higher returns than what the debt market currently offers,” he said.

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